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Volvo Faces Identity Crisis In U.S.

Swedish Automaker Failed To Out-Innovate Rivals On Safety, Durability

Volvo Cars on June 6 confirmed seeking a global lead creative agency. But Volvo needs more than a global ad campaign -- it needs to re-establish its credibility and voice in the U.S.

Volvo wants to restore Scandinavian brand's

The Swedish auto brand once defined safety and durability, but is now struggling through "an identity crisis," said Edmunds.com analyst Michelle Krebs. Moreover, it does not have any new models in the U.S. this year and isn't flexing media muscle comparable to rivals Mercedes-Benz and BMW. Sales are sliding as it cedes ground to rising challengers such as Volkswagen's Audi.

The U.S. is one of the top three markets for Volvo, which Ford sold to China's Geeley Automotive for $1.3 billion in 2010. (The others are Europe and China.) But Volvo's U.S. sales are falling at a time when most carmakers are reporting growth. Year-to-date sales fell 6% to 25,900 through the first five months of 2013, according to Automotive News DataCenter. Last year, Volvo's U.S. sales rose 1% to 68,117 vehicles -- but the tally was only half the 139,000 vehicles sold during Volvo's peak U.S. sales year of 2004.

How did it get there? In large part by failing to out-innovate rivals on its core product proposition. "Volvo used to be all about safety and long-term durability. But [now] everybody has safety. Many companies have more safety features than Volvo does, so they can't own that anymore," Ms. Krebs said. "Same with durability. The average car on the road today is over 10 years old -- which speaks volumes to the quality improvements made by the industry. So what is their niche? It's hard for them to compete in the luxury world with Mercedes and BMW."

Volvo is also being outspent on advertising. Its 2012 U.S. measured-media outlay totaled around $55 million, according to Kantar Media. By contrast, Mercedes spent almost five times that, around $250 million, and BMW more than double at $130 million.

But things could change once Volvo starts pumping new products into the U.S. The company has high hopes for the V60 sports wagon coming in early 2014. Later that year, Volvo will roll out a successor to the XC90 luxury crossover SUV.

The next-generation XC90 "is going to be key for the U.S. market," said Alain Visser, senior VP-marketing, sales and customer service.

Volvo spokesman Dean Shaw said in a statement that the company is investing $11 billion in "product, brand and facilities" globally over the next few years. "We have robust funding for this," he said.

"Obviously we do not disclose our media and advertising spend, but we have had a boost in the overall spend over the past two years," Mr. Shaw said. "Reflecting on our spend relative to Mercedes and BMW, we would of course spend considerably less, but we do not compete in all of the segments they do and we of course sell fewer vehicles overall."

Volvo's search for a global creative lead shop, now held by Arnold Worldwide, does not affect Arnold's U.S. account, said Mr. Visser. As the incumbent, the agency will be invited to defend against three or four challengers. Volvo is planning to hire a consultant to oversee the review and will make a decision this fall.

The winning shop will be charged with understanding the unique "flair" of a Scandinavian brand that's historically revolved around safety and minimalist design, said Mr. Visser, who admitted Volvo has not done "a good job" communicating safety in recent years. "As small as the brand is, because we're just talking about over 400,000 units per year globally, we still have a credible ownership of safety," said Mr. Visser. "We're not planning to give that away."